Monday, 14 June 2010

The basis for many superstitious beliefs may be little more than fantasy but their economic effects are all too real. According to Travis Ng and colleagues at the Chinese University of Hong Kong, casual estimates suggest that between $800 and $900 million is wiped off the value of US businesses every Friday the Thirteenth! Now Ng's team has explored the economic cost of superstition by comparing the value of Hong Kong car number plates purchased through auction from 1997 to 2009.

The new research focuses particularly on the presence of 4s and 8s in Hong Kong plates. There's a consensus in Hong Kong that '8', which rhymes in Cantonese with 'prosper' or 'prosperity', is a lucky number, whereas '4', which rhymes with 'die' or 'death', is an unlucky number.

Controlling for visual factors that affect price (for example, plates with fewer digits are more sought-after) Ng's team found that an ordinary 4-digit plate with one extra lucky '8' was sold 63.5 per cent higher on average. An extra unlucky '4' by contrast diminished the average 4-digit plate value by 11 per cent. These effects aren't trivial. Replacing the '7' in a standard 4-digit plate with an '8' would boost its value by roughly $400.

As well charting the monetary value of superstitious beliefs, Ng's study was also able to record how the economic influence of superstition varies according to ongoing macroeconomic circumstances. For instance, the presence of a '4' in a plate always drops its value, but during bad economic times, the diminution in value is greater. On a day that the stock market had dropped by 1 per cent, the 'cost' of having a '4' in a standard 4-digit plate was increased by 19.9 per cent. 'A "4" is bad,' the researchers wrote, 'but it is even worse in bad times.'

Curiously, the effect of ongoing market conditions on the impact of 4s and 8s wasn't equal. Changes to the stock market index exaggerated the 'cost' associated with an extra '4' on both 3-digit and 4-digit plates, but it only affected the premium associated with having an extra lucky '8' on 3-digit plates. 'We are not able to come up with a good explanation for the asymmetric effects,' the researchers said.

'We have shown that the value of superstitions can be economically significant,' the researchers concluded. 'We have also shown that some results are consistent with the view that people tend to be more superstitious in bad times.'
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